Senators Klobuchar and Grassley Call for FTC Probe on Big Oil’s Monopoly on Fuels

Source: By Marisa Perez-Reyes and Jessie Stolark, EESI • Posted: Monday, July 14, 2014

On July 9, the Renewable Fuels Association (RFA) released a damning report on the stranglehold that the “Big Five” oil companies have over the retail fuel industry. The Big Five (Shell, BP, Chevron, ExxonMobil, and ConocoPhillips) have repeatedly claimed that they have no control over the offerings at individual retail gas stations, because they are individually and not refinery-owned.  However, RFA shows that extremely restrictive fuel contracts with Big Five refineries disincentivizes gas station owners from offering mid-blends to consumers, thus contributing to the E10 “blend wall”. On July 10, Senators Klobuchar (D-MN) and Grassley (R-IA), again requested that the Federal Trade Commission (FTC) look into whether or not the industry is violating anti-trust laws in their fuel supply contracts.

The RFA report outlines ways in which the oil industry exerts direct and indirect control over consumer fuel choices through fuel supply contracts, franchise agreements and branding guidelines, all of which severely limit consumer choice at the pump.  The RFA found fuel contracts between refiners and gas stations commonly contain such restrictions as:

  • Requiring minimum sale volumes of branded fuels.  Meeting these quotas makes selling higher blends of ethanol fuel difficult-to-impossible.
  • Multiple blends of refiner-branded gasoline have to be sold at all times – at the expense of other fuel mixtures, such as E15 or E85.
  • Requiring intimidating warnings, such as “STOP! NOT GASOLINE!” at all pumps dispensing fuels with higher blends of ethanol.

For example, most retail fuel stations have two underground tanks, one for E10 and one for premium gasoline.  The mid-grade (89 octane) is then blended on-site using a blender pump.  With a moderate investment, the premium gasoline tank could be replaced with an ethanol compatible tank, and the consumer could choose between E10, E15, E30, and E85 – right at the pump.  But because retailers are required to offer all three grades of refiner-branded gasoline (E10, mid-grade and premium) on-site, the sale of ethanol would require installing a third tank.  This is just one example of the unnecessary barriers built into fuel supply contracts to make it impossible for individual gas station owners to make renewable fuels available to customers, as they are required to sell “only the fuels that the oil companies choose to make available,” thus allowing oil companies to exercise “undue influence over what fuels are offered to consumers,” according to RFA.  And the numbers back up these claims.  Using data from the Department of Energy (DOE), the RFA  found that unbranded or independent retail stations are four to six times more likely to sell E85 and 40 times more likely to sell E15 than stations carrying the Big Five oil brand.  Meanwhile, only 288 – 0.6% of gas stations with a Big Five contract offer E85, and only one Big Five branded gas station in the U.S. offers E15!  This is despite the fact that EPA certified that vehicles produced from 2001 on are compatible with E15.  Additionally, there are currently at least 10 million FlexFuel Vehicles on the road that can use E85 or any blend of ethanol.

For the past year, Senators Grassley and Klobuchar have been urging the FTC to investigate whether or not these tactics from the Big Five amount to anti-competitive practices.  After the release of the report, both Senators again called for FTC involvement, with Senator Klobuchar, Chair of the Senate Judiciary Committee’s antitrust panel, staying, “This new report underscores the need for the FTC to look into these allegations … I will continue pushing to ensure that consumers have access to the cheaper, cleaner fuels they deserve.”

Senator Grassley commented that the refiners, as obligated parties, are the ones responsible for providing the necessary infrastructure for higher level blends, staying, “Big oil interests can’t argue for repeal of the RFS because it didn’t work when they’re the ones responsible for ensuring that consumers don’t have the choice for higher ethanol blends.”  Not only would greater fuel offerings benefit consumers, retailers stand to benefit by generating additional revenue through offering higher blends as ethanol is currently cheaper than gasoline. It appears clear that Big Oil has used strong arm tactics with gas station owners, not given consumers true freedom of choice at the pump, and has created a false blend wall.